consumers of potential tax consequences
when settling their debt. The intent was to
inform consumers that settlements over $600
would require a Form 1099c to be filed and
the IRS would consider the amount settled
as income. This language became fodder for
litigation as consumer complaints claimed
the least sophisticated consumer could
believe the IRS was involved.
Our agency does not routinely send
Form 1099c unless the consumer requests
it; typically an attorney representing the
consumer requests it. Of course, this
practice may not be recommended for your
agency. Please be sure to consult with an
attorney before making the decision that
best suits your business.
Courts currently do not agree as to
whether a collection agency is required to
include language notifying a consumer of
negative tax consequences.
On one hand, courts such as the Second
Circuit and others have ruled that debt
collectors have no obligation to warn the
consumer of possible tax consequences. On the
other hand, courts such as the Northern District
of Illinois have indicated that including language
regarding the IRS could be construed by the
least sophisticated consumer as intimidation.
Ultimately, whether or not to include language
relating to Form 1099c in a collection letter
remains a business decision that requires
careful research into current case law.
OUT-OF-STATUTE DEBT
DISCLOSURES
Statutes of limitations, which define the time
allowed to seek legal remedy for debt, are set
at the state level and vary greatly. Such statutes
typically extinguish a debt collector's ability to
pursue legal action to collect. They generally
do not remove the debt collector's ability to
continue collection attempts, though, a fact
which is often misunderstood by consumers.
Courts have ruled the FDCPA does not
prohibit the collection of out-of-statue debts,
but they have not reached a similar agreement
as to whether a debt collector must disclose
the applicable statute of limitations when
attempting to collect those debts.
A settlement decree between an asset buyer
and the Federal Trade Commission provides
some clarity on this issue. The decree required
the asset buyer to provide disclaimers when
collecting out-of-statute debts.
The decree provides two distinct
messages, one for debts that will be
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